Fri 27 Nov 2015
Stamp duty increase by 3% from April 2016 for Buy-to-let Investors and Second Home Owners
Government continuing trend of penalising Investors in favour of First Time Buyers
Possible increase in properties coming to the market in the next two months to beat the April deadline
Prices could fall as Investors withdraw from the market
Wednesday’s dramatic and unexpected increase to stamp duty on second homes, which will include Buy-to-let and holiday home purchases, will see stamp duty increase by 3 % above the standard rate from April 2016.
The news will be greeted differently depending on your circumstances and what part of the country you live but whether it will have the Government’s desired effect is far from clear.
James Morgan, Managing Director of John German Estate Agents, with 10 offices across the Midlands, examines how this may affect the Midlands property market.
“In our area, taking a typical Buy-to-let property at around £165,000 would mean from April next year it will cost £4,550 in stamp duty whereas it is currently just £800. Unlike the existing rules, where no stamp duty applies until £125,000, the new rules for “Second Homes” will impose a 3% charge from £40,000 to £125,000 and 5% from £125,001 to £250,000 and 8% over £250,000 with higher rates above £925,000.”
Affect the stamp duty rises will have on property prices
In the short term we would expect some upward pressure on prices for First time Buyer/Buy-to-let property. This will only be dampened by a significant increase in properties coming to the market in the next two months as Owners rush to beat the April deadline and Investors decide to sell up sooner than expected, judging that the Government is going to continue the trend of penalising Investors in favour of First time buyers (FTB's).
Thereafter this temporary reaction should start to level out and FTB will get a head start when competing against Investors, always being able to offer 3% more and yet being no worse off. Investors will need larger cash reserves to pay the extra stamp duty to ensure they can still secure the best mortgage deals. Significantly the returns they need to invest will fall, at least in the short term, until rents are pushed upwards to meet this deficit and lack of supply.
As Investors withdraw from the market this could then lead to a fall in prices; on the face of it all good news for the FTB. However there will still be a huge number of FTB’s who simply cannot afford the deposits and must continue to rent whilst they try and save but will now face higher rents.
The Government’s plan to offer more help to FTB's is mostly directed at New-build property with builders being paid to offer discounts to qualifying Buyers. This is likely to put more pressure on the number of new homes required to be built and inevitably will lead to an even greater price differential between New-build and the Second hand market. As that trend establishes the second hand market will once again become more attractive and Investors will return buying at better prices than would otherwise have applied, helping meet some of the cost of higher stamp duty, and achieve the returns they need.
The implications for non FTB / Buy to let property is less clear. In the short term increased activity at the bottom of the market will be very welcome and should filter up through the market but beyond the initial rush to April this may then lead to less activity and consequently hold back the anticipated price increases forecast by many pundits before the Chancellors statement.
In summary if you are thinking about selling this is the time to get on with it. Predicting the future is always difficult and it’s surely better to deal with what you already know.
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